Abe confirms postponing sales tax hike, calling Dec. 14 election

Prime Minister Shinzo Abe told his ruling coalition partner Monday that he will call a general election on Dec. 14 after announcing on Tuesday the postponement of the planned consumption tax hike, a coalition source said.

By calling an election halfway into the Lower House’s current four-year term, Abe apparently aims to take advantage of opposition parties’ unpreparedness and to cement his grip on power before parliamentary debate begins next year on unpopular bills such as those related to the right to collective self-defense, according to political analysts.

The release earlier Monday of data showing the Japanese economy unexpectedly contracted for a second straight quarter in the July-September period prompted the Abe government and ruling coalition to agree to dissolve the House of Representatives later this week for the election, political sources said.

The preliminary gross domestic product data for the past quarter “were unfortunately not so good figures,” Abe said at a function hosted by Komeito, the junior partner of the Liberal Democratic Party in the ruling coalition. “We cannot miss a chance to get the economy out of deflation,” he said, in apparent reference to the potentially negative impact on the economy if the consumption tax were raised again as planned.

Under a 2012 law, the consumption tax was set to rise to 10 percent in October 2015, following a 3-percentage point increase to 8 percent in April, which caused the world’s third-largest economy to sink into recession over the six months through September.

The second tax hike is expected to be postponed until April 2017.

Abe is expected to announce Tuesday that he will dissolve the Lower House on Wednesday or Friday, depending on developments over two bills on regional revitalization, to seek a new mandate through a snap election, according to the sources.

After returning Monday from Australia, where he attended the weekend summit of Group of 20 economies, Abe met with Komeito leader Natsuo Yamaguchi in the evening to confirm that official campaigning for the Lower House election will start Dec. 2 and voting will take place Dec. 14, according to a ruling party source.

Abe only made a brief comment at his office Monday after attending the party in Tokyo to celebrate the 50th anniversary of Komeito’s establishment and holding talks with Yamaguchi.

“I will make a decision in an appropriate and calm manner,” Abe said when asked if he has made up his mind on the tax hike postponement because of the disappointing GDP data.

The prime minister is also expected to instruct his Cabinet ministers soon to compile a supplementary budget of around ¥3 trillion for the current fiscal year ending next March to revitalize the economy.

The government is prepared to discuss details of its upcoming economic stimulus package at Tuesday’s meeting of the Council on Economic and Fiscal Policy.

Among the measures, the government plans to distribute merchandise coupons to low-income households and buyers of energy-efficient homes and lessen the negative impact of the yen’s depreciation against other major currencies on Japanese importers and regional economies.

After government data showed earlier Monday that Japan’s economy shrank an annualized 1.6 percent in the July-September period, compared with an average market forecast of a 2.0 percent expansion, Chief Cabinet Secretary Yoshihide Suga said at a press conference, “It was much lower than the private-sector forecast.”

Consumer spending, the largest component accounting for around 60 percent of Japan’s GDP, grew only 0.4 percent from the previous quarter, a sign that the April tax increase is still stifling domestic demand.

Asked how the latest GDP data may affect Abe’s decision on the tax hike, Suga only said, “The prime minister will make an appropriate decision after looking at the data and the results of hearings from experts.”

Meanwhile, opposition parties have stepped up pressure on Abe since the release of the GDP data, with Yukio Edano, secretary general of the Democratic Party of Japan, saying, “The limit of ‘Abenomics’ has been shown again” in reference to Abe’s economic policies centering on aggressive monetary easing, fiscal spending and growth measures.